Elasticity Practice

# Elasticity Practice - Elasticity Practice Here you will...

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Elasticity Practice Here you will find a few exercises to test your understanding of the concept of price elasticity. All that you really need to know is the definitions of price elasticity and of revenue. The rest you can handle by just using your head and performing simple calculations. In words, we can state the definition of elasticity of demand as ”percent change in quantity divided by percent change in price as one moves along the demand curve.” More specifically, suppose that the demand curve is given by an equation p = P d ( q ). Suppose that we are given two points on a demand curve. One point is a quantity q and a price p = P d ( q ) on this demand curve. The other point is a different quantity q 0 and price p 0 on the demand curve. Let E d be the elasticity of demand for the movement between these two points. E d = q 0 - q q ÷ p 0 - p p . (1) We can use this definition to solve Problem 1. From equation 1, we see that if we know any two of the numbers E d , q 0 - q q · and p 0 - p p · , we can calculate the third. This fact is sufficient to allow you to figure

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